Wall Street and the Golden State housing are a continent apart when its comes to ups and downs.

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Trader Gregory Rowe works on the floor of the New York Stock Exchange, Tuesday, Oct. 23, 2018. Stocks are opening sharply lower on Wall Street following big drops in Asia and Europe. (AP Photo/Richard Drew)

Dissect the trend

Let’s use some economic history and my trusty spreadsheet to see how Wall Street gyrations sync up with California’s housing performance.

To gain a long-term view, I looked at nearly 43 years worth of trends from a federal home-price index for California and the broad-based Wilshire 5,000-stock. I used quarterly results for both benchmarks to smooth out short-run volatility that grabs headlines and hearts but aren’t that economically meaningful. And to further dampen short-run fluctuations, I looked at year-over-year changes in the indexes.

The first thing I learned was that stock prices gyrate more than home prices. The swift movement of stock prices, even looking at quarterly results, may explain false warning signals sent by Wall Street.

Stocks are roughly 50 percent more volatile than California housing values, by the standard deviation metric. Or look at the varied gyrations this way: since 1975, the stock market’s best 12-month period was a gain of 51 percent (year ended 1983’s third quarter) vs. real estate’s top — 28.5 percent gain for 2004’s third quarter. The worst for stocks? Down 40 percent in the year ended in 2009’s first quarter vs. real estate’s low, a 23 percent drop for 2008’s third quarter.

Next, I looked at five key moments in a 43-year span from 1975 through 2018’s third quarter when stocks where decidedly slumping — defined as a 12-month drop of 10 percent or more. Were these sharp stock drops a “signal” of economic stress with a wide economic impact that hurt California’s housing market?

1. Winter 1982: A stock market dip began with a fall at a 13.3 percent annual rate. That era’s sky-high interest rates were scarring the national economy and scorching Wall Street. But California housing was only hurt modestly with below-average gains in 1982 through 1985 with no highly visible signs of collapse.

3. Winter 1991: Stocks were diving at a 12.1 percent annualized pace — largely the result of a modest national recession. This was the rare time in which Wall Street duress — a brief stock downturn — preceded local real estate woes.

California home pricing suffered as the state economy was whacked by deep jobs cuts in defense-contracting industries. Statewide home pricing did not top 1991’s peak until late 1998. It’s worth noting that for the entire decade, California housing saw values rise at a 1 percent average annual pace vs. 14 percent for U.S. stocks.

4. Winter 2001: New decade, new results. Stocks were diving at a 14.3 percent annual pace as the boom in tech stocks went bust. Harsh declines lasted for more than two years. It was once again Wall Street pain that California housing completely ignored.

The cheap money created by the stock malaise actually boosted housing. Plus, novel but high-risk mortgage lending overheated real estate and double-digit percentage gains were common for nearly five years in California. That ended badly, too.

5. Summer 2008: Wall Street was somewhat late to real estate’s pity party as stocks again harshly fell into reverse — dropping at a 15 percent annual rate. But California home prices were down 23 percent in a year at that juncture — their seventh-consecutive down quarter. Housing’s downward spiral would continue for almost four more years.

How bubbly?

On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ONE BUBBLE.

My math shows Wall Street and Golden State housing are a continent apart when it comes to ups and downs. Down periods for stocks have little correlation to housing’s troubles. But let’s note that shaky stocks can slash consumer confidence and tarnish the broader business climate.

PS: Stock investors do get rewarded for suffering through these bouts of volatility. Since 1975, the Wilshire index averaged annual gains of 9 percent while California home prices appreciated at a 6 percent rate.

Jonathan Lansner has been the Orange County Register's business columnist since 1997 and has been part of the newspaper's coverage of the local business scene since 1986. He is a native New Yorker who is a past national president of the Society of American Business Editors and Writers and a graduate of the University of Pennsylvania's Wharton School. Jon lives in Trabuco Canyon -- yes, a homeowner -- and when he's not fiddling with his trusty spreadsheet at work you can likely find him rooting for his beloved Anaheim Ducks or umpiring local lacrosse games.